The Beat Goes On - trends in online music retailing - Statistical Data Included

Brandweek, Oct 18, 1999 by Eric Schmuckler

The site generates a goodly amount of original content, including popular travel guides to local scenes in great music cities and instant messaging. One of its writers, well-known rock critic Milo Miles, also fields a daily question.

"We're trying to have a dialog with our users more than the behemoths can," says Julie Smith, executive VP/marketing.

Rock.com CEO Kevin Sheehan adds that original content is worth the expense. "We did an extensive history of klezmer music and we ended up selling a lot of klezmer records," he recalls.

Finding customers in the shadow of the big boys has not been a problem, he adds. "We've got an automated outreach program that's one of the core proprietary things we do. It lands us customers at a world-class rate, from $5-$25 a head. We've also done some very successful local radio campaigns. We've grown 20 percent a month since we began on the net a year and a half ago."

Sheehan says they're looking to expand Rock.com's new download program, develop advertising and launch an auction service.

"The Internet is a big-company game," he adds. "The only way to survive is to be one of the big boys. But we survived a couple of iterations already and intend to be one of the winners."

So does CDworld, which is taking the no-frills approach. CEO Bruce Pettyjohn has developed a site based on what he calls "Costco pricing and Nordstrom's service. Efficiency is going to be the name of the game. We're all about the same price--we all source from the same vendors. Our advantage is to be cheaper. In the comparison search engines, we usually come up first or second."

He is dubious about the value of editorial padding for bargain hunters. Plus, he says, "we just don't have the money to throw away. We'll definitely add more product information; a percentage of that is growing from our suppliers. But when you take a look at the cost of putting up the information, it's not economic. If you're making 20 cents on the CD and spending $6 for the info, well, it eats into your profit." That goes against the grain, but Pettyjohn believes "we'll see an evolution of how many people can afford to lose money."

Although the online music segment will grow enough in coming years to provide lush pickings, some of these players will inevitably fall by the wayside. But that's the way it is in the helter skelter Internet environment. Or as noted online pundit John Lennon put it, "Tomorrow Never Knows."

The Future Has Begun

Just as online CD retailers could someday make serious inroads on bricks-and-mortar music stores, so, too, does the dawn of digital music threaten to make online CD schleppers obsolete. For now, the business is taking baby steps--most MP3 downloads are free or, worse, pirated. But transactional downloads have begun, notably last month's release of Tori Amos' "Bliss," at a $2 list price. The new David Bowie album was also available for download before it hit racks in the physical world.

There are a welter of issues to be resolved before down-loaded music can become a real business--bigger bandwidth, copyright, encryption and playback technology chief among them. Once those kinks are ironed out, though, how might a digital download world be organized?